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Non-profits and political speech

Can one of my astute readers explain to me what the rationale is for the ban on express political advocacy by non-profit organizations?

I know that there is such a ban. I think I know what the rule is. 501(c)(3) organization X that stands for saving the whales (or whatever) is legally permitted to talk about the dangers of such-and-such a law to the whales, about how we need more laws to protect the whales, and so forth. But X cannot say, "Elect Smith for Congress this year, because he stands for saving the whales." Or, perhaps more accurately, only the "XPAC" can say that, and a PAC is a whole nother entity. Issue advocacy is permitted, but not express advocacy.

I think I get this. But even before McCain-Feingold (and yes, my memory does go back that far) there was this ban on a non-profit organization's expressly advocating the election of a particular candidate or a particular vote, say, on a referendum. They always had to watch out for that "express advocacy" bright line. Now why?

If the rationale for a non-profit's being tax exempt is supposed to be that it doesn't make a profit, isn't this an accounting matter? Wouldn't this simply be a matter of having a definition of the term "non-profit" and then determining whether or not the group did, in fact, meet that fiscal definition? What does express advocacy have to do with making a profit or not making a profit?

This is not a trick question. I suspect my readers will know the answer better than I do, and as I've been busy and a bit dry of post ideas recently, I thought I'd give y'all a chance to answer it.

Comments (19)

Hey Lydia,

As it was explained to me when I moved into non-profit development, the government makes the allowances to non-profit organizations out of the recognition that the non-profit in question can perform a basic function better than the government. As a result, as a non-profit you are operating under certain guidelines that demonstrate that you understand your organization is now a public entity to a limited degree. It goes well beyond the issue of institutional advocacy for candidates, but in that particular area you would be using success that was built in large part because of the tax implications of being a non-profit, not the least of which is the ability for people to itemize their gifts as a deduction which is a powerful incentive for people to support you, to support one candidate in a public election over another. Since the government is representative of the people and not particular candidates and parties, non-profits cannot then use the trust of the government granted to perform a public serve to additionally represent or endorse particular candidates.

Being able to be an advocate for legislation that falls within your area of mission is different because in that regard you have expertise that might help the public better understand the full scope of an issue. The government approved your mission when it approved your tax status so it would be impossible for them to argue that they do not want you to serve that mission in this particular capacity.

There is a lot more detail, but I thought that would give you a basic answer to your question.

The central question is whether a 501(c)3 should confer a tax benefit on a donor to engage in political advocacy. Since the tax benefit comes at the expense of all taxpayers, including those who disagree with your political advocacy, all taxpayers should not have to pay for your political campaign. It would be unjust, for example, to force faithful Catholics to participate in campaigns for candidates or legislation that would enhance fetal stem-cell research or euthanasia. On the other hand, advocates of political programs are free to organize as a non-profit 501(c)4 foundation, which does allow a high level of political advocacy. Although the 501(c)4, as a non-profit, pays no taxes on its own income (i.e., donations and grants), the donor gets no tax benefit as a deduction on his or her own income taxes. This requires a higher level of commitment on the donor's part, and makes it more difficult, usually, for the foundation to raise funds.

Thanks, guys. Jay, the piece of the puzzle you supplied was this notion that the 501 (c) 3 is in some sense a public entity because of the tax deduction that donors get for their donations. At least now I know what they are thinking. I would be inclined to smile a bit over it, because people get tax deductions for all kinds of things that don't make the recipient of the funds they deducted a public entity. For example, the bank doesn't become a public entity because of the tax deduction for house interest, a daycare doesn't become a public entity because people got to deduct their childcare expenses, and so forth. But at least that explains the rationale.

Jplsr, I didn't know about the distinction between a 501c3 and a 501c4. That's interesting, too.

I think you're mistaken on a very key point, jplsr. The 'taxpayer' is not funding what would be political speech by non-profit groups, unless you think that the money they use that is not automatically taken from them, as is the case of other groups, is inherently property of the government, not the group. Because the government 'beneficently' permits these groups to keep what they earn, it doesn't follow that the money is now government money.

In effect, this is the government 'paying' citizens & groups of citizens to forfeit their freedom of speech. I would rather see many affected groups, like many churches, reject the tax deductions in favor of open expression.

As far as I know when president Johnson was running for election in '64 a couple of Church groups were saying that he shouldn't be supporting such and such (I think it was Abortion) and were actively endorsing his opponent, therefore he used the IRS a rod with which to beat the Churches.

That's kind of surprising about Johnson, because as far as I know, abortion would not have been an issue in a presidential election in 1964, pre-Roe. Abortion was still just a state issue at that time. I suppose Johnson might have been super-pushy on this, but that would surprise me too, as a lot of very liberal Democrats now (e.g., Gore) were verbally pro-life many years ago before this became a hot federal issue. But whatever the issue, it _doesn't_ surprise me that Johnson would have tried to punish those who endorsed his opponents. Free speech has in some ways grown since the 60's, because it was the Nixon administration (!) that originally used the "fairness doctrine" to stifle dissent.

Robert K., I thought of that, too. But I knew what jpetc. meant and decided to let it go. The idea, of course, is that the government never cuts spending. So if someone doesn't have to pay taxes on some money he would otherwise have to pay taxes on, then someone else "has to" pay those same dollars, either in the form of increased taxes to fund govt. programs or in the form of a devalued dollar because of deficit spending, monetization of the debt, and so forth. That the government should off-set tax breaks with actual self-restraint appears never to be even considered.

Fr. Philip on his blog, remarked that the ban isn't law, and those who gnash their teeth and cry, "Pull churches' tax-exemtion! That'll shut 'em up!" ought to be careful what they wish for because it is conceivable that the ban could be ruled unconstitional. Making for a potential schadenfreude-fest.

Thanks, James. I was going on something I had read and hadn't verified, but I take it that it is still true that the Nixon admin. vigorously used the Fairness Doctrine, and I'm assuming that is the origin of what I read.

Scott W., I wish you were right, but the restrictions of McCain-Feingold are a lot more extreme than simply the ban on express advocacy by non-profits, and since M-F was upheld by the court (with a supposedly even more "conservative" makeup than it will have in the future) I'm sure the more long-standing ban on express advocacy by non-profits would also stand. In fact, I was assuming that it had been challenged and upheld.

There should be much greater restrictions on forming a non-profit. In fact, the only grounds that I think they should be founded on are:

1) Provision of religious services.
2) Provision of charity aid.
3) Provision of education in subjects which are generally taught in schools.

Most not for profits are just busy bodies who use someone else's dime to demand more of this or that from other people. If they aren't going to provide a genuine service to the public, they can pay taxes like the rest of us.

Here is good news on this topic. The ACLU is backing the Diocese of Bridgeport in its battle with the state of Connecticut;

"The free exchange of ideas are at stake here,'' said Andrew Schneider, executive director of the American Civil Liberties Union of Connecticut. "The application of this lobbying law to public gatherings such as the church's rally have the effect of chilling free speech.''

The diocese filed a lawsuit in federal court last month, seeking an injunction against an attempt by the Office of State Ethics to require the church to register as a lobbyist.

I was quite unaware of that whole situation in CT, Kevin. Thanks for the info. The proposed bill itself (1098) was pretty outrageous, and for the state then to try to have the church register as a lobbying group for organizing a rally to criticize the bill is even more outrageous. This is one of the few cases where I've actually seen the ACLU backing up the right side.

Mike T., I'm surprised at your position, given your libertarian leanings. For example, I would expect a libertarian not to hold that a non-profit organization is operating on "someone else's dime" simply because of the tax-exempt status of donations and the tax exemption of the organization itself. This seems to buy into the assumption that a tax break is the same thing as govt. funding, which itself arises from the assumption that the government _must_ tax one person more to "pay for" someone else's tax breaks. But if one rejects the whole notion that tax breaks must be "paid for" and that the money was prima facie the govt's money, one will also reject the idea that the non-profit is doing whatever it does on "someone else's dime."

I don't know how vigorous Nixon's use of the Fairness Doctrine was. But if it was so, it would have been a case of tit for tat. Consider this excerpt about how the Johnson administration made use of it from an op-ed by Bruce Fein, the general counsel of the FCC under President Reagan.

Liberal author Fred Friendly recounts in "The Good Guys, The Bad Guys and The First Amendment" (1976) the confession of Bill Ruder, assistant secretary of commerce under President Lyndon Johnson: "Our massive strategy was to use the Fairness Doctrine to challenge and harass right-wing broadcasters and hope the challenges would be so costly to them that they would be inhibited and decide it was too expensive to continue." Martin Firestone, a Democratic Party operative, similarly advised the Democratic National Committee that "right-wingers operate on a strictly cash basis and it is for that reason that they are carried by so many small stations. Were our [Fairness Doctrine] efforts to be continued on a year-round basis, we would find that many of these stations would consider the broadcasts of these programs bothersome and burdensome (especially if they are ultimately required to give us free time) and would start dropping the programs from their broadcast schedule."

LBJ was the culprit, and the ban is written right into the statute that defines the organizations which qualify for the tax exemption (11 USC sec. 503(c)(3)). It's not just an IRS regulation.

Here is how Jay Sekulow described the origin of the ban in a post on the ACLJ site in June, 2008:

"In 1954, then-Senator Lyndon Johnson introduced an amendment that became law that barred tax-exempt groups – including churches – from participating in political activity. Johnson sought political retribution against an opponent who was assisted in his campaign by two non-profit organizations."

Since Senator Johnson was the Majority Leader at the time, what he wanted generally was what he got. There are additional sources that can be cited in support of this account of what happened.

The policy reasons in favor of the ban may or may not be good, but they are not what led to the ban.

I don't mean to directly compare them to welfare recipients, but rather I consider most advocacy work to be parasitic in its own right because it is supported by the work of others and is intended primarily to make more government (what lobbyists and advocacy groups almost invariably want) which burdens others. Additionally, unlike many libertarians, I believe that the path to freedom, if there is one, lays not in trying to lower the taxes of current tax payers, but working to heavily tax everyone. For that reason, I wholeheartedly support taxing all incomes at at least a 10% federal income tax, no matter how poor and destitute a family is. Likewise, I support taxing all corporations equally unless a corporation can prove that it contributes enough to the public to be worthy of an exemption.

If the rationale for a non-profit's being tax exempt is supposed to be that it doesn't make a profit, isn't this an accounting matter? Wouldn't this simply be a matter of having a definition of the term "non-profit" and then determining whether or not the group did, in fact, meet that fiscal definition? What does express advocacy have to do with making a profit or not making a profit?

To respond to this portion at least, non-profit does not mean not making a profit (income exceeding expenses). Non-profit means that profits, if made, will not be taxed. More specifically, not taxed because the profits will not be distributed or otherwise realized by the organizers of the entity. The rationale, at least from the "profit" perspective, is that the profits, if generated, will not be distributed to owners of the enterprise through dividends, etc. (exception for reasonable salary for actual work performed, etc.) so they won't directly benefit, did not intend to directly benefit (organized to carry on a charitable purpose rather than make money for themselves) and therefore should not be taxed. There are reporting requirements and fiscal tests to theoretically ensure this remains the case.

Other than that, the "profit" is not much different (as they say in the non-profit biz - no margin, no mission).

I too have heard that the non-profit regulations are a result of LBJ's fights with Texan pastors. However, I have never heard abortion was an issue in the dispute.

As for the CT bill, the issue is a strange one. There are credible reports the radical proposal was similar to the plan of the Catholic "reform" group Voice of the Faithful, suggesting that Catholics are trying to use the state to jockey for dominance among their co-religionists.

Further, both sponsors of the CT bill were homosexuals, prompting concerns that their interest was personal.

If lobbying regulations have ensnared the Catholic groups against the bill, imagine what they can do in other issues.

The point of the tax exemption for a 501(c)(3) is not that the org is now characterized as being a "public entity to a limited degree", not at all. Probably the most common form of exemption under this provision is religious. It is certainly not the case that the government views those religious orgs as somehow imperfectly or indirectly co-opted into services that the government would otherwise need to provide. Our whole political tradition is to not make religious organizations part of the governmental fabric. In addition, there are separate rules for private foundations as opposed to public charities - public charities are a separate subcategory.

The attitude of the IRS is that 501(c)(3) organization is excepted out from the tax that would otherwise be applied to all their income, for reasons specified by Congress, reasons which are usually categorized as reasons for which people generally have motives that are separate from profit, AND for which generally the activity is broadly considered beneficial to the community. But please be aware that the income that would otherwise be subject to tax is the income that the org earns on its activities, such as investing, etc. As far as I know, the money the org receives as donations is NOT income properly understood. (If I give you 5,000, you do not report it as income - a gift is not income). Therefore, it would not create a tax burden for the org. What is exempt from tax is the organizations income .

The additional tax benefit is that provided to an individual taxpayer for the amount they donate to a charitable org. This amount is deductible under separate section 170, and one of the restrictions is that the org be a 501(c)(3) org. Thus the individual income tax deduction on his donation is a legally separate issue. Clearly the purpose of that is to promote such behavior on the part of individuals. From this standpoint, it may well be the case that a dollar donated to a soup kitchen is a more effective dollar for providing food to the poor than a dollar paid in tax, but that hardly applies to the religious donations.

In my opinion, the purpose of the restriction on a 501(c)(3) org from engaging in political lobbying is to prevent the government from paying for candidate advocacy. Since the tax exemption is a privilege granted by the government, any effort by the org to persuade votes for a candidate may be, effectively, equivalent to using what would otherwise be tax money for candidate advocacy.

I am not sure that the stance is really all that valuable a benefit to the common good, but it clearly lies in the general class of provisions helping reign in corruption. I think that McCain-Feingold is grievously unconstitutional, but don't see any hope of correcting that.

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